Understanding The Weirdness of MLS’s Single-Entity Structure

Major League Soccer is the top-tier professional soccer league in the United States and Canada. It’s also one of the strangest sports leagues in the world, from a business perspective.

Unlike any other major sports league in North America and unlike the vast majority of sports leagues in the world, MLS operates under a single-entity structure. Even calling it that is too simple; as we’ll see, it’s probably fairer to call it a modified single-entity structure. Confused yet? Let’s explore the wacky world of American soccer

A Brief History of MLS

MLS played its first season in 1994, and it owes its existence to the United States’ 1994 World Cup bid. As a part of that bid, US Soccer promised FIFA that they would create a top-tier league. MLS was that league, and it began play in 1996. Right from the start, it operated on a type of single-entity structure.

The single-entity structure means that the league is, for all intents and purposes, one company. You can’t “own” a team in MLS; you can only “invest” in it. MLS still has “owners” (and, for simplicities sake, we’ll use that word in this piece), but in reality they’re more like investor-operators.

The single-entity structure worked well early on, especially because the MLS was short on owners in its infancy. In the early years of MLS, it was common to have multiple teams with the same owners. At one point, AEG owned six teams at the same time.

How the Single-Entity Structure Works for Owners

We mentioned earlier that MLS uses a modified version of the single-entity structure. In a true single entity structure, all of the expenses and revenues would be pooled and distributed. In a strictly traditional league structure, the owners would spend their own money and keep their profits. In MLS, it’s somewhere in between.

MLS team owners keep some of their revenue directly and give some of it to the central entity. MLS uses part of this cash to fund a bunch of the day-to-day expenses of the league, including travel expenses for the teams. MLS is technically governed by a Board of Governors, but being a team owner means you get a seat on that board. Essentially, a team owner gets a vote on MLS’s board and a certain limited autonomy in running “their” team.

In the case of expansion franchises, a new owner is required to pay an entry fee and “invest” in MLS. If, like the Seattle Sounders, they’re bringing a new team into the fold, they’ll essentially give up ownership of the team, its brand, and any player contracts.

There are things about these MLS rules that are comparable to other leagues – for instance, there is revenue sharing in several major U.S. sports leagues – but the scale of it and the fact that the league technically owns all the teams makes things very different. For simplicity’s sake, you can imagine that MLS is a corporation and its teams are companies that it wholly owns; the NFL, by contrast, is more like a Chamber of Commerce of which a bunch of different business (teams) are members. Some of the actions they take are similar, but the balance of power is profoundly different.

How the Single-Entity Structure Works for Owners

The MLS’s single-entity structure works pretty well for owners, but there’s plenty of debate about how it treats players.

Player contracts are by far the strangest thing about MLS’s structure. For starters, no team in the history of MLS has ever had a player under contract!

That’s because every player in the MLS is under contract with the league, not his team. When baseball players sign with the New York Yankees, they sign with the Yankees, but when soccer players sign with the New York Red Bulls, they sign with Major League Soccer.

And because MLS is just one entity, and all of the players are signed directly to it, there’s no way that the teams can be accused of salary collusion. After all, how can you collude with yourself? MLS has used its single-entity structure to institute all kinds of salary and player control rules that would be illegal in other leagues. MLS has a salary cap and extremely limited free agency (for most of its history, MLS had no free agency at all).

These stipulations have been challenged in court a few times, but they’ve always held up. Judges have even ruled that MLS could cap salaries even absent a collective bargaining agreement (not so with other leagues). That’s because there are other leagues in which players can ply their trade – and because MLS is a single-entity structure.

What the Single-Entity Structure Means for the League

So far, the single-entity structure has served the league fairly well. It kept things stable in the early, rocky years of MLS, and it’s allowed the league to stay fairly balanced. The players suffer the main drawbacks: they have virtually no free agency rights and are seeing their salaries artificially depressed by the salary cap.

The other notable thing that the structure does to the league is eliminate the possibility of promotion and relegation. In most soccer leagues around the world, low-performing teams can be relegated to a lower division while high-performing teams can be promoted to the top-level league. That’s not the case in MLS, and would extremely hard to institute without first breaking the top-level teams (who could be relegated) into separate entities.

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Founder, Publisher and CEO of INSCMagazine.
Works have appeared and featured in places such as Forbes, Huffington Post, ESPN and NBC Sports to name a few. Follow me on Twitter at @RobCobb_INSC, email me at [email protected]

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